Professor Sass ECO 5114 Sample Midterm Questions 10 point Questions 1. Suppose that there is an increase in the Federal excise tax on gasoline. How would this affect the quality of gasoline sold? Would an increase in state sales taxes have the same effect? Explain in the context of Lancaster's approach to consumer theory. 2. In a two-good world, if a consumer is maximizing utility, will it necessarily be true that the marginal rate of substitution will equal the price ratio? Explain. 3. In a two-good world, can the goods be net complements? Can they be net substitutes? 4. When one empirically measures price-quantity relationships, what type of demand curve is one estimating? Will this demand curve necessarily be downward sloping? Discuss the advantages/disadvantages of at least one alternative type of demand curve. 5. If a linear demand equation is estimated, what is being assumed about consumers' marginal values? 6. In general, what factors determine a consumer's price elasticity of dema...